Translating Rising Oil Prices to Currency Trading Opportunities

January 26th, 2008 | Mario

Equity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher costs and lower profits for those companies.

In much the same way, a country’s dependency on oil determines how its currency will be impacted by a change in oil prices. The US’s massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative.

If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan.